Apple Offers to Buy PrimeSense

Reportedly, Apple Inc. (AAPL – Analyst Report) has made an offer to buy Israeli 3-D sensor developer PrimeSense for approximately $345.0 million. According to Israel-based Calcalist, negotiations are almost complete and the deal is expected to close by the end of this week.

PrimeSense’s technology was originally used by Microsoft (MSFT – Analyst Report) in its Kinect motion-sensor for Xbox 360. According to AllThings D, the original product known as Carmine was based on a large stationary sensor. However, the company has launched a new product named Capri, which is also suitable for mobile users.

We believe that the acquisition will be a significant addition to Apple’s armory. The smartphone maker can use the technology with its existing product portfolio, as well as with the highly anticipated Apple TV and wearable devices.

Apple makes small but strategic acquisitions that provide it with specific technology or products, which can be easily integrated into its software and hardware. In fiscal 2013, Apple completed 15 acquisitions that include AlgoTrim, Cue, Passif Semiconductor, Matcha.tv, Embark, HopStop, WifiSLAM and Locationary.

Some of these are related to its mapping application (Embark, HopStop, WifiSLAM and Locationary), while Cue is a personal assistant app and AlgoTrim a data compression technology provider. Apple acquired Passif Semiconductor, a low energy chip maker, whose technology can be used in iBeacon.

We believe that Apple’s strong balance sheet will allow it to pursue strategic acquisitions to bolster its product portfolio. This will help it to face significant competition from the likes of Samsung, Google (GOOG – Analyst Report) and Amazon (AMZN – Analyst Report) in most of the markets it operates.

However, lower-than-expected revenue growth in the U.S, falling gross margins and lack of innovation are expected to remain the primary headwinds in the near term.

Nevertheless, we believe that the company is working on a new gadget. Additionally, the recently refreshed product line-up will boost top-line growth in the near term. Further, the shareholder friendly moves such as higher dividend payment and expanded share buyback are expected to drive the stock going forward.